MEANING &

ESSENTIALS OF A
VALID CONTRACT

By:
Naveen Singhvi,
Deputy Director of Audit
 2 29 December 2014

CONTRACT : AN OVERVIEW
o Function of Contracts:
o Fundamental to business,

o Creates rights and duties between parties,

o Provides stability and predictability.

o Parties are Promisor (makes the promise) and

Promisee (accepts the promise).

o Good faith in commercial agreements.

By: Naveen Singhvi

 3 29 December 2014

CONTRACT : DEFINITION

o Agreement that can be enforced in a

court of law,

o Formed by two or more parties,

o Failure to perform results in breach and

damages,

By: Naveen Singhvi

 4 29 December 2014

CONTRACT : CLASSIFICATION

By: Naveen Singhvi

 5 29 December 2014

CONTRACT : CLASSIFICATION

By: Naveen Singhvi

 6 29 December 2014

VALID CONTRACT : ESSENTIALS

o Offer and Acceptance,

o Contractual capacity,

o Free Consent,

o Consideration,

o Legal Purpose,

o Agreement in Written.

By: Naveen Singhvi

 7 29 December 2014

OFFER AND ACCEPTANCE

By: Naveen Singhvi

 8 29 December 2014

OFFER AND ACCEPTANCE

o First essential of a valid contract is

agreement,

OFFER ACCEPTANCE

By: Naveen Singhvi

 9 29 December 2014

OFFER : AN OVERVIEW

o When a person makes an offer/

proposal, he signifies to another his
willingness to do or to abstain from
doing something,

o Offer must be given with an intention to

create a legal relationship,

o There is a clear cut difference between

offer and invitation to make an offer,

By: Naveen Singhvi

 10 29 December 2014

OFFER : AN OVERVIEW

o Expression of Opinion, Preliminary

Negotiations etc are not offers,

o Offer must be definite,

o Offer must be communicated,

o Mere statement of price of a piece is

not an offer,

By: Naveen Singhvi

 11 29 December 2014

ACCEPTANCE : AN OVERVIEW

o When a person made a proposal to

another and the proposal is assented
there to, it is called acceptance,
o Voluntary act by the Offeree that shows
assent to terms of original offer,
o Mirror Image Rule:
o Offeree must unequivocally accept
offer,

By: Naveen Singhvi

 12 29 December 2014

ACCEPTANCE : AN OVERVIEW

o Additional terms may be considered a

counteroffer,
o Acceptance must be given as per the
mode prescribed by the offerer,
o Acceptance must be given before the
lapse of time or within reasonable time,
o Acceptance may be given by any
person in case of general offer.

By: Naveen Singhvi

 13 29 December 2014

ACCEPTANCE : AN OVERVIEW

o Acceptance must be communicated,

o Mental acceptance is no acceptance

or acceptance must not be derived
from silence,

o Acceptance must not be precedent to

offer.

By: Naveen Singhvi

 14 29 December 2014

CONTRACTUAL CAPACITY

By: Naveen Singhvi

 15 29 December 2014

CONTRACTUAL CAPACITY : AN OVERVIEW

o The condition for a person to enter

into contract :
o He/She must be major,

o He/She must be of sound mind,

o He/She must not be disqualified by any

other law.

By: Naveen Singhvi

 16 29 December 2014

FREE CONSENT

By: Naveen Singhvi

 17 29 December 2014

FREE CONSENT : AN OVERVIEW

o Two or more persons are in consent

when they agree upon the same thing in
the same sense,
o Consent is free when it is not caused by:
o Coercion,
o Undue influence,
o Fraud,
o Misrepresentation,
o Mistake.

By: Naveen Singhvi

 18 29 December 2014

FREE CONSENT : AN OVERVIEW

o A has two cars, one blue and other red. He
wants to sell his blue car. B who knows of
only As red car, offer to purchase As car
for 20000 Dollars. A accept the offer
thinking that it is for his blue car. This is
no consent because both the parties are
not understanding the same things in the
same sense.

o If B goes to A and on the point of pistol

asks A to sell his red car for sum of 20000
Dollors to him, there is consent because
both are understanding that red car is the
subject matter of the consent, but the
consent is not free because it has been
obtained by Coercion.

By: Naveen Singhvi

 19 29 December 2014

NO FREE CONSENT : COERCION

o Committing or threaten to commit any

act forbidden by law of the land or
unlawful detaining or threating to
detaining any other persons property with
a view to enter into an agreement,
o The threat amounting to coercion need
not necessarily be from a party to
contract , it may also proceed from a
stranger to the contract.

By: Naveen Singhvi

 20 29 December 2014

NO FREE CONSENT : UNDUE INFLUENCE

o A contract is said to be induced by

undue influence where:
o The relations subsisting between the
parties are such that one of the parties
is in a position to dominate the will of
the other, and,
o uses that position to obtain an unfair
advantage over the other.

By: Naveen Singhvi

 21 29 December 2014

NO FREE CONSENT : UNDUE INFLUENCE

o The person deemed to be in position to

dominate the will of the other:

o Where he holds a real or apparent

authority over the other like master
and Servant, child and parents, etc,

By: Naveen Singhvi

 22 29 December 2014

NO FREE CONSENT : UNDUE INFLUENCE

o Where he stand in a fiduciary

relationship (Mutual trust and
confidence) like religious guru and
follower, lawyer and clients, etc,
o Where he makes a contract with a
person whose mental capacity is
temporarily or permanently affected
by reason of age, illness or mental or
body distress.

By: Naveen Singhvi

 23 29 December 2014

NO FREE CONSENT : FRAUD

o It means and includes any of those acts
committed by a party to contract,
o or with his connivance.
o or by his agent,
o With an intent to deceive or induce a
person to enter a contract:
o The suggestion that a fact is true when
it is not true and the person making it
does not believe in it to be true,

By: Naveen Singhvi

 24 29 December 2014

NO FREE CONSENT : FRAUD

o The active concealment of a fact by a
person having knowledge or belief of
the fact,
o A promise made without any intention
of performing it,
o Any other act fitted to deceive,
o Any such act or omission as the law
specially declares to be fraudulent.

By: Naveen Singhvi

 25 29 December 2014

FRAUD : ESSENTIALS
o There must be a representation or
assertion and it must be false,
o The representation must relate to a fact,
o The representation must have been
made with the intention of inducing the
other party to act upon it,
o The representation must have been
made with a knowledge of its falsity,
o The other party must have
subsequently suffered some loss.

By: Naveen Singhvi

 26 29 December 2014

NO FREE CONSENT : MISREPRESENTATION

o There is misrepresentation:
o When a person positively asserts a fact
is true when his information does not
warrant it to be so, though he believes it
to be true,
o When a party causes however
innocently the other party to the
agreement to make a mistake as to the
substance of the thing which is the
subject of the agreement.

By: Naveen Singhvi

 27 29 December 2014

DIFFERENCE IN FRAUD & MISREPRESENTATION

Nature Fraud Misrepresentation

Intention to
Exists Doesnt Exist
Deceive

Damage can be
available to the No such damage are
Consequence
affected party for the available
loss suffered

The guilty party does

The guilty party have
Defense not have any defense
defense in its favor
in its favor

By: Naveen Singhvi

 28 29 December 2014

DIFFERENCE IN FRAUD & MISREPRESENTATION

M was a marriage broker who gave Y the

photograph of a man and told him that the
man was young and rich. Y conveyed the
same to his daughter who agreed for the
proposal. But on the day of marriage it was
discovered that the man was of the age of
60.
There is fraud between M and Y, whereas the
is misrepresentation between Y and his
daughter.

By: Naveen Singhvi

 29 29 December 2014

NO FREE CONSENT : MISTAKE

o It means an error in understanding the
fact relevant for formation of a contract,
o Where both the parties to an agreement
are under a mistake as to a matter of
fact essential to the agreement, the
agreement is void,
o Ex: A agrees to buy from B a certain
horse. It turns out that the horse was
dead at the time of the bargain, though
neither party was aware of the fact. The
agreement is void.
By: Naveen Singhvi
 30 29 December 2014

CONSIDERATION

By: Naveen Singhvi

 31 29 December 2014

CONSIDERATION : OVERVIEW

o When at the desire of the promisor,

o promisee or any other person has done
or abstained from doing or does or
abstains from doing or promises to do or
to abstain from doing something,
o such an act or abstinence or promise is
called a consideration for the promise,
o Consideration is value given in return for a
promise,

By: Naveen Singhvi

 32 29 December 2014

CONSIDERATION : OVERVIEW

o That is bargained-for-exchange between

the parties,

o Consideration need not be adequate

/sufficient,

o Consideration must be real and not illusory,

o It must not be illegal, immoral or opposed

to public policy.

By: Naveen Singhvi

 33 29 December 2014

LEGAL PURPOSE

By: Naveen Singhvi

 34 29 December 2014

LEGAL PURPOSE : OVERVIEW

o If the object of an agreement is the

performance of an unlawful act, the
agreement is unenforceable.

o A contract would be valid only if the

object and the consideration are legal.

By: Naveen Singhvi

 35 29 December 2014

UNLAWFUL AGREEMENTS
o An agreement forbidden by law,
o An agreement defecting any provisions
of law,
o An agreement opposed to public
policy,
o An immoral agreement,
o A fraudulent agreement,
o An agreement creating damage to
person or property,

By: Naveen Singhvi

 36 29 December 2014

OPEN HOUSE

DOUBTS/QUESTIONS/COMMENTS

By: Naveen Singhvi